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Private developers’ tax breaks to come under intense scrutiny

Should financially strapped Baltimore support private development?

That is one of the questions posed by a city task force that studied the practice of granting millions in taxpayer incentives for economic development.

Over the next six months, city leaders will dissect and debate a series of recommendations by the group that has produced the first public debate on the tax increment financing (TIF) and payments in lieu of taxes (PILOT) incentives that are given without voter approval and directly impact property tax collections annually.

Mayor Stephanie Rawlings-Blake’s spokesman Ryan O’Doherty said the mayor agreed with the task force conclusions that incentives help spur jobs and economic growth, but criticized the document because it lacked key local employment data resulting from TIFs and PILOTs already granted.

“Curiously absent from the report, however, is any specific mention of the thousands of city jobs and millions in new tax revenue supported by these incentives at successful neighborhood projects like Mondawmin Mall, Belvedere Square, Charles Village and Clipper Mill, to name a few,” O’Doherty said in a news release. “If the question is whether or not the city should use tax policy to support economic development, any reasonable analysis of this question should include information about new jobs, new tax revenue, new support for minority businesses, and new investment in city neighborhoods that otherwise would not have occurred without the tax incentives.”

O’Doherty produced figures that show 3,896 jobs are “supported” in the city because of existing PILOTs, and that there are 1,774 jobs in existing TIF districts. The data was provided to the city’s Board of Estimates by the Baltimore Development Corp.

Such information will help move the discussion of TIFs and PILOTs along as the task force report moves toward consideration by the entire City Council next year, said Councilman Carl Stokes, who chaired the task force.

It is part of a push to open up a public dialogue on the incentives, which are often controversial and complex transactions.

“We want as much transparency in place as possible,” said Thomas Marudas, a member of the task force during a hearing on the report held at City Hall last week. “We want that they not be done in a political atmosphere. We want what’s best for the city.”

The city has 11 TIF districts, including the $1.8 billion redevelopment of Middle East by the East Baltimore Development Inc., which has a $78 million TIF. And even though TIFs and PILOTs have gone to projects such as Mondawmin and Belvedere, they are often seen as one-sided and focused on downtown, the 19-page report said.

“The use of commercial PILOTs and TIFs to support private investment in Baltimore is relatively recent and largely unstudied,” it reads.

A proposal added during the hearing to place a moratorium on granting more TIFs and PILOTs until all recommendations made by the task force are aired by city officials was rejected by Rawlings-Blake and other representatives of the development community.

That would have affected plans to institute TIFs at Locust Point, where Under Armour officials are preparing a request to upgrade a public walkway and waterfront bulkhead in preparation for the bicentennial of the War of 1812 celebration next year.

Other TIFs for the massive State Center project and a proposed development of Westport could also be affected by the moratorium, said Stokes, chairman of the council’s Taxation, Finance and Economic Development Committee, which heard the report last Thursday.

“I would like the committee to work through the recommendations of the task force before we move forward with new TIFs and PILOTs,” Stokes said at the hearing, adding that a moratorium would last “until we are satisfied that the city is using the best tools to enhance development and use those tools for the benefits of the city.”

Ian Brennan, another spokesman for the mayor, said the idea of a moratorium was “puzzling.”

“To hold up TIF or PILOT legislation would be reckless, and threatens to kill job creation in the city,” Brennan said in an email.

M.J. “Jay” Brodie, president of the Baltimore Development Corp., the city’s nonprofit development arm, declined to comment on the moratorium.

Baltimore’s total TIF debt is $135 million, and the current projects with PILOTs exempt more than $12.8 million in property tax revenues each year.

The task force recommended adding more scrutiny, transparency and oversight to the process by which the incentives are awarded — before they are voted upon by the City Council and the city’s Board of Estimates.

Jon M. Laria, a partner in the real estate department at Ballard Spahr LLP who represents the developer of the massive $1.5 billion State Center project, now derailed by a lawsuit in Baltimore City Circuit Court, said the scrutiny is reasonable.

“I don’t think anybody is going to object to greater transparency, prudent investment of public funds … or better marketing of existing incentives,” he said.

Laria was appointed by Gov. Martin O’Malley last year to chair a state commission that is examining similar public incentives.

The task force report addresses that point, seeking ways to broaden the granting of development incentives to communities not in center city or along the waterfront.

The 10 recommendations listed in the report state a need to “prioritize the economic development goals of the city and examine the use of TIFs and PILOTs for public goods projects as well as building a larger middle class.”

Other recommendations include:

— Establishing policies and procedures that foster greater transparency.

— Establishing standard criteria for profit sharing on all projects.

— Establishing independent systems to evaluate and monitor proposed and active TIFs and PILOTs, including an independent advisory body with staff support independent of the development agencies. TIF and PILOT commitments should expire after a reasonable amount of time if the developer has failed to move ahead on the project; transfers should be subject to city approval.

— Developing an economic development incentive program to advance area specific goals.

— Fostering better coordination between the city economic development agencies and the Department of Planning.

The recommendations also seek to establish an expiration date for TIFs and PILOTs once they are granted to developers — if they cannot obtain financing for projects.

That suggestion was met with protest by the BDC’s Brodie.

“Time is a situation we can’t control,” Brodie said during the hearing, citing the recession and tightening of lending and credit for developers by banks.